Going, Going, "Bremain?"
But over the weekend, the polling equation changed, apparently altered by the brutal murder of popular Labour MP Jo Cox, a “Remain” advocate who was ambushed by an attacker in her district. A stunned nation put the Brexit debate on hold. For the pro-“Brexit” forces, momentum appears to have been lost, according to various press reports.
Prior to the reversal in the polls, the forecast by our economist raised the question about what would happen this week when the financial markets suddenly realized that they had mispriced the fact that moderates wanted out of the EU. It led us to this back-of- the-envelope strategy: Sell non-core positions, lighten up on core positions, go long on U.S. Treasuries, short the Pound and start looking toward the start of a global recession.
Indeed, according to the Financial Times last week, the International Monetary Fund predicted that by 2021, a post-Brexit gross domestic product across the EU would be 1.4 percent lower under the most favorable scenario. Under the worst, the IMF’s economists projected a GDP that would be 4.5 percent lower. After all, the UK does sell more to the EU than it buys from its fellow member countries.
The FT also noted that EU lawyers were looking toward legal remedies to immediately muscle the UK out of the Union if the referendum calls for an end to membership. The “Leave” campaigners are said to have declared that Britain could leave gradually over time, allowing for the renegotiation of new trade deals. But the EU reportedly has no appetite for a protracted withdrawal. With two more business days to go before the Thursday vote, many money managers are now on the sidelines to await what now appears to be a 50-50 proposition.
OIL REBOUNDS AGAIN
As U.S., European and Asian markets were driven largely by the polling shift, oil was also up today, with the Brent and West Texas Intermediate futures pushing back toward the $50 a barrel mark after falling toward the mid-40s last week.
The price lift came after a top Russian official over the weekend told ITAR-TASS, the nation’s official news agency, that he saw no need to urgently boost oil production. Said Deputy Prime Minister Arkady Dvorkovich: “We need a moderate development with very small increases.”
The U.S. Energy Information Administration reported that oil-directed rigs increased by 3 to 328 based on information provided by Baker Hughes. This is the second consecutive weekly increase in the oil rig count.
NATURAL GAS SPOT PRICES UP
For the reporting week ending Wednesday, June 15, the EIA said that outside of the West Coast and Northeast, natural gas spot prices rose at most market locations. The Henry Hub spot price continued its recent increases, rising by 29 cents from $2.33 per million British thermal unit (MMBtu) to $2.62/MMBtu.
At the New York Mercantile Exchange (Nymex), the July 2016 contract rose from $2.468/MMBtu to $2.595/MMBtu
Citing Baker Hughes, the EIA reported that for the week ending June 10, the natural gas rig count increased by 3 to 85.
AN EQUATION FOR FORECASTING TERROR?
In the grim lookback that is the investigation of the massacre at the Pulse gay nightclub in Orlando, questions have arisen about the use of social media by Omar Mateen, identified as the Florida man who murdered 49 club patrons and wounded 53 others.
Mateen, according to law enforcement officials, telephoned 911 from the club to express his allegiance to the terror group ISIS. He checked Facebook to determine if the carnage he unleashed had been reported on social media, the communications venue of choice for terror organizations and their supporters. The FBI now says that while Mateen did not act under the direction of ISIS, he was “radicalized” by online propaganda.
The case’s social media connection brought to light some potentially game changing findings by a physics professor at the University of Miami who says that he and a team of researchers have developed a mathematical model to identify behavioral patterns of online groups that back ISIS, according to Veritas, a university magazine.
The researchers’ thesis: if investigators could concentrate on groups of “serious followers,” such as those who discuss operational details of a plot, anti-terror watchdogs could monitor the growing volume of group chatter on social media and possibly help law enforcement avert a tragedy.
One need only look as far as last week’s assassination of the British MP Jo Cox. Her murder not only traumatized a nation, but appears to have altered the course of the highly contentious “Brexit” debate that has gripped Europe and global markets. In court Saturday, the alleged killer declared his name was “Death to traitors, freedom for Britain.” While no social media connection has emerged thus far in the murder case, the research is a reminder that decision makers and law enforcement have valuable investigative tools at their disposal to help deflect catastrophes.
What We’re Watching This Week:
Monday:
-- Federal Reserve President (Minneapolis) Neel Kashkari speaks at “Too Big to Fail” symposium.
Tuesday:
-- Federal Reserve Chair Janet Yellen testifies before the Senate Banking Committee.
Wednesday:
-- Janet Yellen testifies before the House Financial Services Committee.
-- Existing home sales reported.
Thursday:
-- British voters cast ballots on whether to keep their nation in the European Union.
-- Federal Reserve announces stress test results for 33 large U.S. and European financial institutions.
-- Initial unemployment claims reported.
-- New home sales reported.
-- Federal Reserve President (Dallas) Rob Kaplan discusses economic conditions and role of monetary policy.
Friday:
-- Durable goods for May reported.
-- Consumer sentiment reported.
--- Michael Corcelli